Algoritma dan Strategi Forex Mekanikal | OneStepRemoved

The Secret for Trading a Double Top

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The double top pattern is no doubt among the simplest and most familiar price patterns in technical analysis. Biasanya, a double top pattern is followed by a sell off. Dalam teori, this rather simple pattern should be easy for traders to pounce on and yet, too often, it’s a cause for frustration. That’s because the realization that a pattern has formed comes too late and, as a result, there’s little room for profit. But before you become discouraged there is an effective strategy – a tactic, if you will – that will allow a trader to recognize a double top and, at least most of the time, ride on the trend reversal, just in time to profit.

Spotting a Double Top

The first part in trading a double top is spotting the double top on time. I like to call it the two-step verification.

As we can see in the chart below, the second wave has reached a climax in Point A. Seemingly, that is still a bullish sign because Point A is higher than the previous peak. But there is more to the picture than meets the eye. If we stretch a trend line from the previous top we can see that Point A signals some sort of slowdown; it is lower than Point X where the trendline indicates it harus be. That is the first confirmation. If the top of the wave is lower than the trendline indicates, it is the first cue that a double top might be forming.

The second sign emerges in Point B, where the wave, rather than ending in the supporting bullish trendline below it, ends much lower. That is our second confirmation.

So why do those two occurrences signify that a double top is coming? Because when the top of the wave is lower than what the trend warrants, it suggests that the price range is shifting lower. Because the wave bounced back at Point Z, it confirmed that a double top is coming and that the price range is shifting lower.

Double Top

Entry and Stop Loss

After you recognized that the double top is, Sesungguhnya, coming, the next phase would, sudah tentu, be to place your entry and stop loss.

The ideal place to open a short under a double top would be just above the shoulder of the wave that signalled the double top; in the chart below this is wave one. Notis, Walau bagaimanapun, that the actual entry comes at wave number two. This requires discipline; if the following wave does not hit our sell point just above the shoulder of wave number one, we do not enter.

The reason? We want to minimize our stop loss risk. Our stop loss should be placed slightly above the top of wave one; if we enter too early we will be forced to take more risk in our stop loss and we could end up profiting much less.

Double Top

Setting Your Target

When setting a target for your short the most important aspect to consider is the timeframe you are trading. The longer the timeframe, the higher the likelihood that the double top will lead to a significant sell off. But the shorter the duration, the higher the likelihood that what you are witnessing is part of a correction within a bigger trend.

In the above example, we are witnessing a macro trend that lasted years and thus the likelihood that a major correction will follow this double top is high. Under such a case, the trader might set his target for a full reversal.

There is one noticeable trade off in trading a double top on a long-term trend; pada masa-masa, there may be several failed (single top) attempts to break higher rather than a single double top before the correction begins. That means that while the potential gain is higher it may take longer to materialize.

Oleh itu, if the double top you are trading belongs to a trend that lasts several days, or even several weeks, the prudent target should be at the lowest point of wave one in the double top. This will usually correspond with the 50% Fibonacci retracement level. Since our entry has been above the shoulder of wave one, it should provide a fair gain potential relative to the risk.

Kesimpulannya, it should be noted that it does not mean that if you’re trading a trend with a shorter time horizon that you cannot expect an utter trend change and a bigger potential. What it does mean is that you are just taking the risk that it might be part of a bigger bullish trend. If that is the case, then your stop loss could be hit before the limit is reached. But once again, this is just a risk you must decide if you are willing to take for a potentially bigger profit.

Sudah tentu, as I always like to stress, there is no perfect strategy. It is always advisable to use indications to get some contrast on the trade you are about to take, regardless of the strategy. But if performed with discipline, and considering that a double top pattern is so common, this strategy could come in handy.

Trading with the Aroon Indicator

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Through this column we have covered many oscillators which are generally very effective in analyzing momentum; they include the Average True Range, MACD and the VIDYA. Some oscillators are better at predicting short term momentum, while some are lagging indicators and tend to shine brighter when it comes to long term momentum. Namun, in this article, I will be focusing on one oscillator—the Aroon Indicator—that has a very different benefit. As a backstory, the Aroon Indicator was developed by Dr. Tushar Chande a little more than 20 tahun yang lalu. What makes the Aroon indicator special is that it provides in-depth insight as to how the buyers and the sellers are behaving within each price level. I will explain how that understanding of the buyers’ and the sellers’ behavior is very useful information.

Aroon Indicator: The Basics

The Aroon indicator, as seen in the chart below, has two separate curves, in this case marked with green and red. The green curve, called the Aroon Up, measures the buying momentum over time and the red curve, called the Aroon Down, measures the selling momentum. How does the Aroon measure momentum? In the Aroon Up it measures how much time it takes a pair to reach the highest level from the opening price at a given period. Sebaliknya, in the Aroon Down, it measures how much time it takes the pair to reach a new low from the opening price.

In both the Aroon Up and the Aroon Down, the higher the indicator the stronger the momentum. So if the Aroon Up is high, it means buying activity is strong, and if the Aroon Down is high it means selling activity is strong. If both are high, then buying and selling activity is high, and if both are low, vice versa.

Aroon indicator

Aroon Indicator: Down to Practice

Now that we have established how to read the Aroon Up and the Aroon Down, it’s time to move into practice—how comparing the Aroon Up and the Aroon Down within the Aroon Indicator can help us understand the trend.

In the sample below we can see two zones, which I will call Zone A and Zone B. Each chart variation captures a different layer in the Aroon analysis and therefore each could provide a practical example on how to use the Aroon Indicator.

Aroon Indicator

Zone A.

In Zone A, we can see that, around July(Point X) the EURUSD had just started a very strong bearish trend that subsided only in April 2015. Before the Bearish trend began, the Aroon Up was high and the Aroon Down was low. This indicates that buying activity was elevated while selling activity was low. Then in April, the Aroon Up was starting to fall and the Aroon Down jumped shortly after. What does it mean? It means a quick change of momentum because as soon as the buyers became exhausted the sellers immediately began piling in. Selling activity was high through to April 2015 while buying activity continued to fall.

Insights-

  • The sellers are substantially more dominant around Point X. The sellers were very quick to react, showing overwhelming conviction over the buyers around this point. Oleh itu, it should be recognized by the trader as a substantial pivot.
  • Once the Aroon Down jumped it stayed at an elevated level and held almost a straight line, suggesting the selling momentum was especially strong and this means a trader could expect a strong bearish move.

Zone B.

In Zone B, we can see something interesting; while the Aroon Down fell until October 16ke-, the Aroon Up was still staying low. Jadi, while the sellers were out of the market, the buyers were not coming in, suggesting very weak buying appetite. Lebih-lebih lagi, after October 16ke-, the Aroon Up jumped and so did the Aroon Down; later, both fell and then both jumped again. That suggests that even after the nose dive the pair took, and even after some buyers came back, the buyers were hesitant to buy. Walau bagaimanapun, because the Aroon Down is also unstable it means that, at that level, the sellers were also somewhat hesitant.

Insights-

  • In the immediate time frame, the trader might expect the pair to trade with some sort of sideways momentum, with both the buyers and the sellers undecided.
  • When we look at the bigger picture and in the context of what happened before October 16ke- it is clear that the sellers had the upper hand. Dan, even when the sellers were sitting on the fence, the buyers did not come in and even when they did they were still hesitant. This means that there is a rather high likelihood that the sellers will gradually comeback for more and that signals a high likelihood of another bearish wave once the sideways movement is over.

The Bottom Line

Sudah tentu, I always like to stress that no single indicator is perfect and the Aroon Indicator is no different in that respect. If the Aroon Indicator is not calibrated to the right duration or at other times during very high volatility the reliability of it might be lower. Tetapi, this is a very powerful Indicator, and the fact that it adds another layer to our analysis by letting us understand the behavior of both the buyers and the seller around each time frame and price zone makes it a powerful tool for those traders that focus on the long term.

Lessons from a Decade of Trading the JPY

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The past decade has been a turbulent one for the Japanese Yen, or the JPY as it’s familiarly known. The Yen’s multi-year bullish trend which started in the 1990s ended and it flipped into a brutal bearish correction. Lebih-lebih lagi, the Bank of Japan embarked on an unprecedented journey of more and more Quantitative Easing, effectively printing trillions of Yens to revive its stagnant economy. And finally, let us not forget the tsunami that hit Japan’s coastline in 2011 which tragically took a very hefty toll in human lives and which sent jitters across Yen pairs.

Jadi, why am I dwelling on this? Because this decade of Yen turbulence has provided us with some very important trading lessons on the JPY, specifically, and on trading, in general. Dalam artikel ini, I will elaborate on two important lessons for both the novice and experienced traders that I’ve learned through trading which may not be immediately intuitive.

JPY Lesson on Natural Disasters

In the period that preceded the 2011 tsunami, I was expecting a major turnaround specifically in the trend of the USD/JPY, and in the Japanese Yen, secara amnya. As I’ve often said, the longer the duration of your trade the more fundamentals will have an impact on the trend. Back in 2010-2011, I was focusing on the Japanese Yen which was in a multi-year bullish trend and so fundamentals were critical. Japan’s economy was suffering from persistent deflation and weak economic performance and that warranted a massive stimulus. Sudah tentu, any form of stimulus, either monetarily from the central bank or fiscally from the government, usually means a weaker currency. And so, that meant the end of the Yen’s strength and the start of a bullish trend in the USD/JPY (which moves in reverse). That meant that the bearish trend of 13 years would finally come to an end. Sudah tentu, that is provided stimulus would be forthcoming, which I thought was very likely.

Kemudian, pada Mac 11, 2011, the tsunami hit the coast of Japan. And as hysteria hit the markets, the USD/JPY plunged. Investors were crowding in to safety and speculation grew that the Yen’s long-term trend of appreciation would intensify as investors sought shelter.

The USD/JPY tested the 76 level and bounced back after a concerted effort by central banks across the world. Several months later, the pair finally bottomed out at a slightly lower level of 75. And the bullish rebound, aka weaker JPY, started in 2012.

What is the lesson? The lesson is that natural disasters in large economies, even severe ones, generally cannot change the long-term economic fundamentals and, oleh itu, cannot change a currency’s long-term trajectory. The JPY eventually had its trajectory to playout, Dgn kata lain. bahagian bawah, and the rebound took place only a few months later.

That means that even a disaster of this magnitude should not change your long-term strategy. Since a natural disaster can create short-term volatility it could present an opportunity to ride a long-term trend or a long-term turnaround at a more convenient entry.

JPY: Leg Down Vs Double Bottom

When we look at the USD/JPY bottoming out during 2012, we can see a rather interesting pattern. Rather than a double bottom warranted after a multi-year bearish trend (bullish JPY), what we see is a bullish wave right after the last bearish wave. The intermediate zone between is uncharacteristically short and the range uncharacteristically narrow. One common mistake is just to assume we had a swift bottoming out process, but the real answer is that that is a leg down and not a double bottom.

JPY

The key difference between a leg down and a double bottom is highly practical from a trading standpoint. On a double bottom the rebound takes much longer, with the pair fluctuating at lower levels for longer. Once the short sellers are shaken off, the rebound begins. Sebaliknya, in a leg down scenario the rebound is much quicker. But there is a price for that quick rebound. Because a leg down does not validate a change of trend, our prudent assumption should be that the bearish trend line should be respected and we should target Point X rather than Point M, at the peak of the last wave. Akhir sekali, a leg down would mean another leg down is required over the long run and that means that we should be alert to a potential change over the very long run.

JPY

What is the lesson? A leg down means a quicker rebound but with a lower potential while a double bottom means a slower rebound but one that lasts much longer. Dan, sudah tentu, we should always be on alert for another leg down. It should be noted, Walau bagaimanapun, that that might take a long while especially in the case in which Point M is broken, which would signal a much wider rebound.

Using the Accumulation/Distribution Indicator

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A double bottom that fails to hold, resistance that gets sliced in a heartbeat or just a trend that surprisingly breaks. Those are just a few of the”nasty” pitfalls that nearly every trader regularly encounters. Those pitfalls are seemingly out of the blue but are, sebenarnya, just a result of another dimension acting in parallel to the price. That dimension? The money flow. Determining where the money is flowing is exactly what the Accumulation/Distribution Indicator does and does quite well, one might add.

Accumulation/Distribution Indicator: The Basics

The Accumulation/Distribution Indicator, which was developed by Marc Chaikin, was designed to capture the accumulated money flow into an instrument.

The indicator formula factors in for each period (harian, mingguan, dan lain-lain) the difference in the closing price to the lowest price and to the highest price, and the difference between the instrument’s high and low and, sudah tentu, the volume. Lebih-lebih lagi, all of the values are accumulated; each reading is added to the last, thus accumulating the values.

The fact that the indicator is built on accumulation allows it to take into account the money flow. That provides the trader with a much clearer glance at the big picture as to how money flows over time in to or out from a pair, rather than just capturing a quick swing as many oscillators do.

The Accumulation/Distribution Indicator does not require any specific parameter; agak, the values are accumulated per candle. Sebagai contoh, if the period is daily, then the indicator accumulates volumes on a daily basis, dan sebagainya.

Secara umum, as a rule of thumb, the best periods of the Accumulated/Distribution Indicator are weekly and greater. That’s because, in a daily interval scenario, the volumes can sometimes be irregularly high, often as a result of some short-term, perhaps even insignificant, acara. Tetapi, for a week to have a high volume, the reason for it has to be much more significant, and that makes the indicator more effective and accurate; the higher you go on the interval, the better the accuracy, dan begitu juga sebaliknya.

Down to Practice

Jadi, how do we translate the Accumulated/Distribution Indicator into an effective strategy? I find the most practical way to use the indicator is by stretching a trendline below it, and then dividing it into four different signals—Up, Down and Sideways (Sehingga, then Sideways or Down, then Sideways). The Up signal is when the indicator is rising and signals an inflow of funds. The Down is when the indicator is falling and signals an outflow of funds.

In either of the two Sideways signal there is generally a freeze, an indication of low volumes and low activity. The Sideway signal is very important because it usually comes after strong inflows or outflows and it signals the exhaustion of the trend. If an Up signal turns into a Sideways signal, it means money inflows are topping out and money outflows could soon appear. If the Sideways signal comes after a Down signal it could mean that money outflows have been exhausted and money inflows could soon appear.

Accumulation /Distribution Indicator

Sekarang, let’s examine the chart above and see how those signals can help avoid the usual pitfalls.

Rintangan-

We can see that during the first Up signal, the pair was heading towards a resistance at Zone A. But what we see is that as the pair headed towards Zone A, our signal below turns from Up to Sideways. Ini bermakna, as soon as the pair reached the resistance, the money inflows stopped. The conclusion? The resistance is not likely to break. If the signal would have stayed Up, with the indicator rising, it would mean more money inflows ahead of the resistance, and that could signal a break.

Double Bottom –

In Zone B, we can see the pair has created a double bottom, a classic pattern for a rebound. And yet the Accumulation/Distribution Indicator is still Down. And that means that the double bottom pattern is not strong enough to stop the money outflows and, oleh itu, might not hold. Seemingly, as long as the signal is still down, the pair could trend higher (slightly) tetapi, keseluruhan, the trend is still down, despite the double bottom. While this is not a signal for short sellers to enter into a new short position, it is certainly a signal for buyers to avoid a buy position. That is unless the signal turns Sideways. Tetapi, as long as the signal is Down, even if it is at a slower pace, the double bottom is not strong enough for a rebound.

Di samping itu, since it’s usually mentioned in the educational materials, it’s worth mentioning here that if the Accumulation/Distribution Indicator is diverging from the price trend it means that the trend is not reliable. Walau bagaimanapun, biasanya, the divergence will not be an outright divergence with the indicator moving in the opposite direction to a price, but more of a sideways state while the price continues to move. Ini, sudah tentu, suggests that the trend is weak and might end abruptly.

The Bottom Line

One other issue worth mentioning is that you should check to see if your platform enables you to see volumes on FX pairs, which is a critical component for the Accumulation/Distribution Indicator. Tetapi, once the volume is set, the Accumulation/Distribution Indicator can be counted upon and, as can be seen in our sample, can save you from many pitfalls.

Using Dow Theory in Forex

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There’s hardly a trader, whether short term or long term, who doesn’t rely, in some form or another, on technical analysis. Yet many don’t know that the backstory behind what we today refer to as technical analysis is actually a collection of ideas on trading stocks. Some of those ideas are, sebenarnya, more than a hundred years old; they are referred to collectively as Dow Theory. Going into the source, the so-called genesis of technical analysis can provide valuable lessons for a trader, even today and even in Forex. In this article I will go into some basic concepts of Dow Theory and offer my personal takeaways from it.

Pertama, walaupun, the backstory. The Dow Theory is named after Charles Dow, a financial journalist and one of the founders of the world-renowned Wall Street Journal. Dow had written a series of articles on his theories and concepts on market behavior, pricing and patterns for the Wall Street Journal. Those ideas were later developed further, refined and enhanced by followers such as William P. Hamilton, Robert Rhea and Richard Russell. The collection of ideas known as the Dow Theory therefor, encompasses concepts from Dow and his followers.

Dow Theory Concepts

With that brief history of the Dow Theory behind us, it’s time to get into the meat and focus on some key concepts and how they could be implemented when trading Forex.

I like to think of the Dow Theory as having two pillars—one theoretical, the other practical. The theoretical concepts focus on how to approach the market, the so-called theory behind trading.

The practical ideas are focused on things such as rising tops and bottoms, which confirm a bullish trend, and/or rising volumes, which confirms a trend’s strength. Since most practical ideas belong to basic technical analysis such as stretching a trend line, I will focus on the theoretical side which is often overlooked by traders.

Combining the two pillars should give the trader the proper approach and the necessary tools to beat the market.

Concept

The Dow theoretical side focuses on the benefits of the bigger picture. Dalam erti kata lain, it focuses on what the broad market is doing rather than a specific asset or security or, in our case, a specific pair. Mengapa?

Over the longer term, the broad market cannot be manipulated by any one player. It is true that over short durations, the broad market can be manipulated, but unlike a stock or a security, over the long haul there is no one factor with enough liquidity to manipulate the long term trend. That means that in order to profit one must first gauge the long term trend of the broad market, and only then can one make a decision on the next trade.

Lebih-lebih lagi, according to the Dow Theory, the broad market prices all the knowns and even the potential unknowns that have a higher probability of occurring. Dalam erti kata lain, the broad market is so big and diversified that the current trend and price behavior prices all the known positive and negative information as well as all that market participants believe could happen.

Dow in Forex

Although the Dow Theory was initially designed for analyzing stocks, the concepts stated above can provide some powerful insights into the Forex markets. If we refine the two concepts we get one clear idea; that is the best way to predict markets is to focus on the big picture and that means focusing on the long term and focusing on the broad market rather than a signal pair.

That means that focusing on the long term trend over months, and even years, can yield much better results than focusing on shorter durations. Lebih-lebih lagi, in a more practical sense, longer duration charts tend to be easier to analyze with support, resistance and trends much easier to define. Secara peribadi, it is one of the key reasons that I prefer long term trades. Sudah tentu, short term traders can be highly lucrative and successful as well, but focusing on the long term trend is essential for crafting a strategy that could work over the long run. It allows you to identify areas of high volatility, areas where a pair is destined to have resistance, or areas where short term support can be broken.

Another important takeaway is focusing on the broad market. How does that come to play in Forex? It means that you should always aspire to analyze the big trend. In practical terms, it means, contohnya, that you should always analyze the Dollar Index before trading a dollar pair, to figure out the long term trend on the dollar. It also means that, if you trade a low liquidity pair such as the USD/BRL, you should first identify the overall trend in the FX market, risk on or risk off.

As seen in the sample below, the EURUSD is trending higher which means a bearish Dollar. But on the other hand in the second chart , the Dollar Index which represents the Dollar against a basket of currencies, is trending higher as well suggesting the exact opposite, a bullish dollar. Since Dollar index represents the big picture for the Dollar it is the one we should relate to when determining the long term trend.

Dow Theory

Dow Theory

The Bottom Line

Sudah tentu, there are many more takeaways and more layers to the Dow Theory and it is always a good idea to go over the original books and learn from the source, whether it’s the articles by Charles Dow himself or The Stock Market Barometer written by William P. Hamilton and The Dow Theory by Robert Rhea. Tetapi, as an experienced trader, through the years I have found that the best takeaway from the Dow Theory is that its emphasis on the big picture improves your chances to avoid manipulation and areas of unexpected market reactions which, in turn, makes a strategy more successful. It doesn’t mean that you have to trade only over the long term but it does mean that you have to first figure out the long term before anything else.

 

Enhance your Moving Average with VIDYA

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The Moving Average is, mungkin, the most popular indicator in trading for a reason. Comparatively, the crossing average can tell you plenty about a trend, Dgn kata lain. whether it’s broken or unbroken, changing or holding. But the Moving Average isn’t perfect; there is one area where it falls short and that is volatility. Even an Exponential Moving Average, which places more emphasis on the latest data, can miss the mark when it comes to a sudden change in volatility, rising or falling. Oleh yang demikian, it can either give a fake signal or else generate a signal only when it is too late to trade on. Volatility is where the Variable Index Dynamic Average comes in, or VIDYA for short.

The Variable Index Dynamic Average or VIDYA was developed by Tushar Chande, and its focus is precisely on volatility. Dalam erti kata lain, the VIDYA is an average that adjusts itself to changing volatility. When volatility is high, the VIDYA becomes more sensitive and when volatility is low, the VIDYA becomes less sensitive. That allows you to assess the trend according to current market conditions (and not irrelevant conditions that had earlier prevailed).

The VIDYA in Essence

The math behind the VIDYA formula is quite complicated, but the logic is not.

The VIDYA essentially has two components, the first being the Exponential Moving Average (aka EMA). The second indicator is in the “oscillator family” and it is known as the Chande Momentum Oscillator (aka CMO). Like most oscillators, the Chande Momentum Oscillator generates a signal of -100 dan 100, dengan -100 being oversold and 100 overbought. The EMA is the anchor index, and the CMO’s job is to adjust the exponential average to volatility. The closer the CMO is to 100 atau -100 the higher the volatility and the more sensitive our exponential average will turn. Sebaliknya, the closer the CMO is to 0 the less sensitive our exponential average will turn. The final reading after the volatility adjustment is the VIDYA.

As you can see below, once you add the Variable Index Dynamic Average in MetaTrader you get a window with two parameters from which to choose: One is the Period CMO and the other is Period EMA. We can then decide which period the CMO will run on (and thus affect the sensitivity of our EMA) and which period the EMA will run on (to capture our trend). Biasanya, the best CMO to plug in is a third of the value of the EMA duration; this is to allow the latest change in volatility to impact to the greatest degree. If the CMO period is too long, it will likewise spread over the period too long and consequently fail to reflect current levels of volatility, thus defeating the VIDYA’s purpose.

VIDYA

Comparing the VIDA to the EMA

When we compare the two, we can see the clear advantages the VIDYA(Red) has over the EMA(Green). Both the VIDYA and the EMA run on a 30-week period, but the VIDYA is smoothed out by the Chande Momentum Oscillator running on a 10-week period (lagi, a third of the whole period). The VIDYA simply captures the trend much more accurately. We can see how, in Point A, when momentum weakens, the Variable Index Dynamic Average starts to flatten, while the EMA just moves across the price and fails to adjust.

This quality is especially beneficial when we want to get an indication if a trend has broken or not. The EMA, dalam kes ini, suggests the trend has, Sesungguhnya, broken but when we look at the VIDYA we quickly get a more accurate picture. We can see that the downtrend has not been broken which allows us to prepare for another bearish round rather than mistakenly expect a rebound.

VIDYA

Sudah tentu, for every upside there is a downside and the downside of the VIDYA is that it becomes less effective on a very high duration, such as above 90. The Chande Momentum Oscillator cannot reflect sentiment very well when the duration ןד high and therefore it stops being effective at balancing the Exponential Moving Average within the Variable Index Dynamic Average. One way to tackle or mitigate this is to go higher in the intervals whenever possible, such as from days to weeks or weeks to months. Namun begitu, you should be cognizant of this in inherent weakness in the Variable Index Dynamic Average. Namun, despite that, the Variable Index Dynamic Average does a very effective job. If you are trading under volatile conditions and want to figure out if a trend is broken or set to continue, the Variable Index Dynamic Average could be the solution. When combined with other indicators of momentum, the VIDYA can give you the bigger, clearer picture.

 

Trading the Symmetrical Triangle

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I always like to say, that in any trading strategy, you should only be exposed to the market when absolutely necessary. Yang, whether it’s a strategy running on daily intervals or on monthly intervals, a trader should not stay in the market longer than needed because it leaves room for the unexpected. This is especially true when it comes to momentum strategies and it can be the difference between gain and pain. The Symmetrical Triangle strategy is one that is simple and effective enough to let you gain from momentum, without staying a second longer than necessary. The strategy relies on a pattern that, no surprise, is called the Symmetrical Triangle.

Symmetrical Triangle Pattern

So what is the symmetrical triangle pattern? Secara ringkasnya, it is a pattern that enables you to buy into a correction and sell before the pair peaks again.

In order to identify a symmetrical triangle pattern, we have to watch for four unique yet symbiotic conditions.

  • The pair has to be in a long term bullish trend.
  • The pair has to be in the midst of a temporary correction.
  • The correction has to be in the shape of a triangle with lower highs.
  • The momentum of the correction has to converge with the oscillator, as seen in the MACD chart below.

Symmetrical Triangle

The buy signal comes at a very specific time. That is after the pair breaks the correction pattern and oscillator (dalam kes ini, MACD) moves back above zero and ascends into buy territory.

The symmetry of the triangle is what helps us determine our limit. The symmetry does not have to come in the shape of a symmetrical triangle on the upward move. Malah, only one element should be symmetrical—the highs. The highs from where the pair breaks the correction pattern (see point A) should be identical to the highs of the triangle.

Using the grid to measure the height, if the height of our triangle is three and a half squares we should stretch point A three and a half squares to point B.

The Idea Behind the Strategy

So what is the idea behind the Symmetrical Triangle?

To get the answer, we need to start with the end result.

The chart shows that the pair has continued above point B (which was our target), yet the symmetry rule made us exit the trade early. Mengapa? The idea is that when you have a triangle break that fulfilled the aforementioned conditions it tends to generate a move higher, sekurang-kurangnya the same height as the triangle from the point of the break. Jika, contohnya, the bullish trend would have been over, the pair would have topped out a little above point B. But if we were targeting G, a higher point, and stayed too long, we could have ended up with pain rather than gain. But the symmetry method allows us to take a profit even if the pair was about to top out and reverse.

When we add the entry methodology that allowed us to enter the trade early with minimal risk the picture become clear. The symmetrical triangle is an “in and out quick” strategy that minimizes risk in both directions. The entry is right at the bottom of the correction and the exit point is distant enough to make it a worthwhile trade and quick enough to avoid a potential trend reversal.

Before You Start

Sudah tentu, as with any strategy, including the Symmetrical Triangle, there is no singular perfect strategy that can always guarantee profit. The major downside to the Symmetrical Triangle strategy is that the pattern does not occur every time. Sebagai contoh, in the waves that followed we can see there were no lower tops when the pair corrected, just a steep descent towards the support line. That means that the Symmetrical Triangle is a low frequency strategy—it provides an entry signal only every once in a while.

Secara semula jadi, that means you cannot rely on this strategy alone for profits because it may take time between each opportunity. Tetapi, when balanced with other strategies, the Symmetrical Triangle can certainly spice up your results and allow you to improve your trading performance each time it produces a burst of momentum.

How to Trade Spirals of Contraction and Expansion

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When you trade, whether it’s the EURUSD pair or Gold or any other asset, there is a certain spiral-like cycle, with constant contraction and expansion. Identifying the waves of contraction and expansion is a powerful tool that lets you identify long term trends and trade them effectively. The key to understanding contraction and expansion rests with one of the most popular tools in the world of trading—Fibonacci retracement.

The concept of contraction and expansion is simple; each wave of price movement is either an expansion of price range or a contraction of the wave before it. An expansion is a bullish sign, with prices expanding upward, while a contraction is a bearish sign, with prices contracting downward. 50% of the Fibonacci retracement of each wave compared with the next allows us to compare how each wave is stacked against the other, Dgn kata lain. wider (expanding) or narrower (contracting). And this allows us to ultimately decide the price pattern we are looking at, either as a contracting spiral or an expanding one. Notice that, di sini, we do not use the Fibonacci as an indicator to forecast possible corrections but to measure the size of each wave.

As seen below in the EURUSD chart, we have stretched a Fibonacci retracement from the bottom of each wave to the top and left only the 50% tahap. The rule of thumb is simple; we compare the 50% level of each wave to the one before and the one after. Jika 50% of the wave is higher than the one before, this is an expansion. If we look closely and stretch a line from all the 50% tahap, we can see some sort of a spiral shape which, dalam kes ini, is a contracting spiral.

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Trade the Spirals

So how would one use spirals of contraction and expansion? It can either be used as a contrarian tool or as a validation tool.

The contrarian use of spirals is simple and perhaps the most effective. Looking at the sample above, we can see that the 50% level of the third wave is suddenly below the 50% Fibonacci of the second wave. That is a signal that a contracting spiral is forming. When it comes in conjunction with an overbought signal from an pengayun that is an even more powerful sign. The power of the contracting and expanding spiral in that once you get the signal early on before most of the long term move starts.

The use of spiral waves as a validation tool is a bit trickier. Suppose you are planning a buy strategy for a long duration but the Fibonacci lineup points to a contracting spiral; this is a warning sign that you might be taking the wrong direction. Sebaliknya, if you are planning a buy strategy and the Fibonacci lineup suggests an expanding spiral(bullish) that is already mid-way and started a few waves ago, there is no guarantee that the next wave will signal the end of the trend.

The Bottom Line

Spirals is a very powerful tool for long term trades. Seperti biasa, it is advised to use spirals alongside an oscillator and other indicators in order to better time your trade. Sudah tentu, if you’re planning a multi-week trade, having spirals in your toolbox is a smart move. Walau bagaimanapun, there is one caveat. As you may have noticed, identifying contracting and expanding spirals is most effective early, when you can identify the start of the spiral. It allows you to figure the direction and the strength because when a spiral starts usually a prolonged move is in the cards. But where spirals fail is that you never know exactly when the spiral will end and for that you must be prepared with other sets of indicators.

Trading with the Commodity Channel Index

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When trading, one of the most important pieces of information to have is the ability to identify momentum—when it begins and when it ends. It can help you plan your next trade and to ensure that that trade is successful. It is in the process of charting momentum that the Commodity Channel Index is especially effective, and that is regardless whether you are trading commodities, stocks or Forex.

The rationale behind the Commodity Channel Index or CCI is that it is an oscillator that measures the deviation from the simple moving average over the period. Just like most oscillators, it has an overbought level and an oversold.

Dalam teori, using the CCI is similar to reading a Relative Strength Indicator (RSI). If the CCI is relatively high then the pair is overbought and when it is relatively low, the pair is oversold. Dalam amalan, Walau bagaimanapun, using the CCI is a bit more complicated than the RSI. Unless the CCI is calibrated correctly it is practically worthless in identifying momentum cycles. Lebih-lebih lagi, without correct calibration, it can generate plenty of false signals. But if you calibrated the CCI well it is an extremely efficient and powerful tool.

Commodity Channel Index: Calibration

The first step in calibrating the CCI is to identify when the current cycle began. This will help us decide the right period in which to run the CCI. In order to identify the beginning of the current cycle we can use Fibonacci Time Zones, which will give us an accurate measure.

Sebagai contoh, when we look at the Fibonacci Time Zones in the weekly chart below, we can conclude that the current cycle started 36 weeks ago. The rule of thumb is to divide the total period by three to give the average a bit more sensitivity. In the example below, it will be 36/3=12 weeks. That is the average the CCI should run on.

The reason we use Fibonacci Time Zones to calibrate the CCI is because the cycle’s length changes from wave to wave as they become longer and consequently the relevant average changes. Through the Fibonacci Time Zones, we can estimate with some degree of confidence when the cycle started.

Commodity Channel Index

Analysing the CCI

Once the CCI is calibrated, the rest is simple. CCI, as previously mentioned, measures overbought and oversold levels. But rather than just looking at relative highs of the index we need to look at its behavior.

Sebagai contoh, in the Gold chart below, we can see that the CCI is converging with the price movement. That is a clear sign that bullish momentum is fading. If we take it a step further and continue our trend line all the way to the bottom, we can conclude another thing; that is that the pair, in this case XAU/USD, has already peaked and is heading lower in a bearish momentum.

Commodity Channel Index

Another way to chart the momentum is by examining the CCI behavior between the Fibonacci Time Zones. Notice that the CCI has a tendency to bottom out when the cycle ends and then rise. We can use that to ride on a rebound. There are cases, especially on a long term bullish trend, that we can get the exact opposite effect, iaitu, the CCI peaks every time a Fibonacci Time Zone ends. The idea is to observe the pattern and then use it to your advantage.

Sudah tentu, as I’ve said in the past, oscillators should always be used alongside other indicators to get the full picture, and the Commodity Price Channel is no different. As usual in trading, there are no guarantees, but certainly the well calibrated CCI can provide a very coherent picture of where a pair’s momentum is headed, north or south.

Use Fibonacci Expansions to Set a Limit

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You’re about to ride a bullish trend; you plan your stop loss and gauge how much you can risk. You also know the rule of thumb—that is that your profit should be at least twice the amount you are willing to risk. But how can you know if the trade you’re considering really has potential that is worth twice the risk? The Fibonacci Expansion is a great tool that allows you to assess the potential of a bullish trend, especially when used with other indicators.

Drawing the Fibonacci Expansion

The Fibonacci Expansion on a MetaTrader trend line has three dots yet only the first and third are really worth your focus. The first dot has to be placed at the beginning of the first wave in our expansion wave and the third dot should be placed at the beginning of the second wave.

Fibonacci

Awas: One of the biggest pitfalls in the Fibonacci Expansion is the failure to recognize the second wave. The second wave can only be considered a second wave if it is higher than the first; if it did not create a new high, it’s either not the second wave or, worse, there’s no expansion.

After the Fibonacci Expansion has been drawn, we can see the various levels of possible resistance. It is important to notice that, Sesungguhnya, the various levels of Fibonacci are acting as resistance levels, especially the 61.8% dan 161.8%. If the Fibonacci levels and resistance levels do not align on key levels, the Fibonacci Expansion was drawn incorrectly.

Setting your Limit

When the Fibonacci levels are overlaid, you can get an indication on possible targets for your trend and can decide accordingly on which level to place your limit. If the limit is more than twice the distance in pips to your stop loss, that is a confirmation that the trade is worthwhile.

Fibonacci

Now you are left with a key decision: where is the potential limit for this trade? That will depend on your degree of conservatism, Dgn kata lain. your risk threshold. Sebagai contoh, placing your limit at the 200% level is somewhat aggressive. If you have to place your limit on that level to gain twice what you are risking, you are taking quite a chance because there is no margin of safety. But if you set your limit at 161.8% and that gives you twice what you are risking, then there is more margin for safety, and the pair is more likely to fit the 161.8% level than it is the 200%. If the pair surges beyond the 200% level you can repeat the drawing process and stretch a new line and get a new potential target.

Rules to Remember

The biggest risk with Fibonacci, whether it’s expansion or retracement, is that if you stretch it wrong, your entire strategy can go wrong, including your potential target. One way to avoid such a pitfall is to use the second wave rule of thumb. Another way to minimize risk is to calibrate Fibonacci using Parabolic SAR. It is also important to remember that, just like any other trend or support line, the higher you go on the intervals – daily, mingguan, monthly – the more accurate it is likely to be (dan begitu juga sebaliknya, sudah tentu). Akhir sekali, and perhaps the most important thing, is the understanding that Fibonacci does not determine trend—YOU must determine whether or not the trend is, Sesungguhnya, bullish before considering the Fibonacci expansion as accurate.